Are Baby Boomers Saving Enough?

May 2, 2014

According to surveys, older Americans feel better about their financial situations than any other age group, reports Robert Samuelson for the Washington Post.

Concerns have mounted over the adequacy of retirees' savings as millions of baby boomers leave the workforce. But have older Americans really not saved enough? According to Boston College's Center for Retirement Research, 50 percent of Americans are not saving enough, while University of Wisconsin economists John Karl Scholz and Ananth Seshadri say that the number of "under-savers" is only 10 to 15 percent.

Samuelson thinks that retirees are not in the financial straits that many suggest.

In 2010, 80 percent of households headed by someone aged 65 to 74 owned their homes. Half of these had fully repaid their mortgages.

For all homeowners, median home equity was $120,000. Retirees can borrow against their home equity if they need to supplement their retirement income.

In 2010, nearly 75 percent of households ages 55 to 64 had some combination of individual retirement accounts (IRAs), 401(k)s, and defined benefit pensions. Of IRA and 401(k) accounts, the median value was $100,000.

While many analysts say that retirees should match 80 percent of their preretirement income in order to match their previous living standards, Samuelson argues that this figure is incorrect.

Americans' expenses change after retirement, and they no longer pay Social Security taxes or Medicare payroll taxes -- 7.62 percent of wages.

Moreover, retirees do not pay commuting and parking costs or the costs of a work wardrobe. And most retirees' children are no longer in the home, significantly reducing costs.

According to Jack VanDerhei of the Employee Benefit Research Institute, 90 percent of baby boomer retirees will have sufficient incomes if they do not have to pay nursing-home costs. Factoring in those costs, however, drops that number to just 80 percent.